Non-QM loans can be a great alternative for business owners, real estate investors, self-employed individuals, and even those who have recently experienced bankruptcy or foreclosure.
Just Funded Mortgage offers non-traditional mortgage solutions for those who need them, which includes non-QM loan products.
Want to understand more about this loan type and if it’s the right one for you? Keep on reading!
Non-Qualified Loans VS Qualified Loans
A qualified mortgage loan refers to loans that are less risky due to some regulations that protect the lender. It’s also beneficial for the borrowers because it ensures you apply only for loans you can afford. The most common requirements include a good debt-to-income ratio and minimum credit score.
On the other hand, non-QM loans or non-qualified mortgages are designed for borrowers who may not meet a specific criterion. For example, those of you with an unsteady income or have a unique financial situation.
A few reasons that some people may opt for a non-QM loan are that they have limited documentation, a large debt-to-income ratio, or want to get an interest-only loan.
Despite the more flexible requirements, it doesn’t mean that there are no verifications to go through. While non-QM borrowers tend to have a higher DTI ratio, they also usually have a higher credit score. Instead of using pay stubs, borrowers are allowed to use other types of documentation to verify their income sources and assets, as long as they can prove the ability to repay the amount borrowed.
Non-QM Loans Benefits
A non-QM loan may be what you need. Here are some of the biggest advantages:
- More flexible requirements. Perhaps the main benefit to choosing a non-qualifying mortgage over conventional ones is the sheer flexibility of the requirements and documentation. You don’t have to calculate your personal income or submit your job history.
- Lower down payment. In addition, you may also benefit from a lower down payment. In some cases, you may even be allowed to put down as little as 10% of your total mortgage amount!
- Higher DTIs. Borrowers with a higher debt-to-income ratio than the requirement for most QM loans will be able to qualify for a non-qualified loan with no problem.
- Can count rental income. Finally, if part of your income includes revenue from Airbnb rentals, you may find it difficult to prove on a conventional loan. But this isn’t a problem with non-QM loans!
Non-QM Loans Risk
This type of loan also contains risk. You need to know this.
- Higher interest rates. In exchange for flexible income verification and the other requirements, you may have to compensate for other aspects. For instance, a higher interest rate. This can definitely be a huge drawback for most people, so it’s always worth finding a few options for the lenders so that you can find the one that offers the lowest rate.
- Larger costs and fees. Another disadvantage of non-QM loans is that they don’t follow the general regulation standards, which means the costs and fees can vary and depend hugely on each lender. Most qualified mortgages have a set limit for how much lenders can charge for the fee, but this limit doesn’t apply to non-qualified loans. Often, this leads to borrowers paying a larger amount in the long run.
- Harder to find. Finally, not all lenders provide non-QM loans, which means you may need to look for specific companies that do offer the product. As a result, this might take a longer time, especially because you’ll want to compare multiple lenders to secure the best deal possible.
Non-QM Loans Products
Are you wondering about the different types of non-QM loan products out there? Let’s take a look at the most common ones:
Jumbo Loan: The requirement for most jumbo loans includes a 20% down payment, but this option allows you to put down only 10%. It can be a good idea for those with large student loans left, especially if they are also high-income earners!
Asset-based Loan: With this type of loan product, you can leverage your liquid assets to secure a mortgage loan. Some assets you can use our savings and investment accounts, money market funds, etc. But note that you may need to pay a higher interest rate.
No Income Verification Investment Loan: For some people, income verification is simply not a feasible option. For example, real estate investors can use their real estate portfolio to qualify for a non-QM loan. This is a much better option compared to private loans, as they usually offer ludicrous rates and have a long approval process.
Bank Statement Loan: If you want to use bank statements as proof of your ability to repay the loan, then a bank statement loan may be right for you. This is a popular choice among business owners and consultants, and usually requires you to submit 12 months of statement.
Foreign National Loan: Here’s another example of a non-QM loan, which is ideal for foreign nationals who do not have a Social Security number, FICO score, or Individual Tax Identification Number. Of course, there are still some other requirements you have to meet!
Who are qualified for Non-QM loans?
In essence, there are three main types of people who are best qualified for non-QM loans. They are self-employed people, those with unusual credit scores, and investors wanting to buy a holiday home.
If you’ve tried applying for a traditional mortgage and failed, you may find some success with a non-qualified loan.
Apply For your Non-QM Loans
When it comes down to it, applying for a non-qualifying mortgage may not be the worst idea! For those of you with income that fluctuates on a monthly basis, have a high DTI, or other unusual conditions, this might be the type of mortgage that you need!
Remember that lenders still have a set of requirements you need to meet; they are just different and can be adjusted according to your finances and ability to repay the loan.
Want to learn more about mortgages and how you can start your non-QM loan journey? Just funded Mortgage is ready to help!